So­cial ben­e­fits in the age of Uber

Financial Mirror (Cyprus) - - FRONT PAGE -

When it comes to com­pen­sa­tion, the com­pany you work for of­ten mat­ters more than how good you are at what you do. In 2013, the av­er­age em­ployee of Gold­man Sachs, the in­vest­ment bank, earned $383,000 – much higher than what the best-per­form­ing em­ployee in most firms can hope to take home. Pay dif­fer­ences across com­pa­nies are con­sid­er­able. Re­search by Ja­son Fur­man, US Pres­i­dent Barack Obama’s top eco­nomic ad­viser, and Pe­ter Orszag, Obama’s former bud­get di­rec­tor, has found that ris­ing pay dif­fer­en­tials are the prime cause of widen­ing US wage in­equal­ity in re­cent decades. They ac­count for a larger part of the rise in over­all in­come in­equal­ity than wage dif­fer­ences within com­pa­nies or cap­i­tal in­come.

At the other end of the spec­trum, many la­bor-force par­tic­i­pants are on tem­po­rary con­tracts, work for small firms, or are self­em­ployed. Some com­bine dif­fer­ent jobs at the same time. If, as ex­pected by many, the so­called shar­ing econ­omy de­vel­ops, their num­ber is bound to grow. Th­ese work­ers do not ben­e­fit from job se­cu­rity and gen­er­ally earn much less.

Emerg­ing coun­tries of­fer the ex­am­ple of bla­tant in­equal­ity be­tween em­ploy­ees in the for­mal sec­tor – com­pa­nies like Petro­bras in Brazil and In­fosys in In­dia – and those who work in the in­for­mal econ­omy. But even in ad­vanced economies, where so­cial pro­tec­tion is broad in scope, ac­cess to ben­e­fits is far from equal. Em­ploy­ees of large, prof­itable firms tend to en­joy bet­ter health-care cov­er­age, more gen­er­ous pen­sions, and eas­ier ac­cess to train­ing. More­over, some ben­e­fits – for ex­am­ple, parental leave – are con­di­tional on se­nior­ity within a com­pany.

Th­ese are dis­turb­ing facts. Tal­ent and ef­fort should be re­warded, but two peo­ple of equal ca­pa­bil­i­ties and ded­i­ca­tion should not be treated dif­fer­ently just be­cause one hap­pens to be an in­sider, with a se­cure job in a big, suc­cess­ful com­pany. Such dif­fer­ences are ques­tion­able not only in terms of fair­ness; they are also eco­nom­i­cally in­ef­fi­cient, be­cause they tend to limit la­bor mo­bil­ity across firms and sec­tors. Em­ploy­ees may think twice be­fore leav­ing a com­pany if they are set to lose valu­able perks as a con­se­quence. This pre­vents po­ten­tially pos­i­tive match­ing of the skills needed by em­ploy­ers and the avail­able sup­ply of them. It also makes hir­ing first-class tal­ent ex­ces­sively dif­fi­cult for small com­pa­nies.

Pub­lic pol­icy should not pre­vent suc­cess­ful com­pa­nies from pay­ing more and of­fer­ing bet­ter work­ing con­di­tions. But it should en­sure that all par­tic­i­pants in the la­bor force, what­ever their sta­tus, en­joy equal ac­cess to es­sen­tial ben­e­fits; and it should aim at min­imis­ing the losses that im­pede mo­bil­ity across firms, sec­tors, and types of em­ploy­ment. Obama’s health-care re­form was an im­por­tant step in this re­gard. But so­cial­wel­fare re­forms should go much fur­ther. For fair­ness as well as for ef­fi­ciency rea­sons, rights and ben­e­fits should be at­tached to in­di­vid­u­als, not to com­pa­nies or em­ploy­ment sta­tus, and should be fully portable across sec­tors and jobs.

To at­tune its so­cial-wel­fare sys­tem to a chang­ing econ­omy and re­duce in­equal­ity among in­di­vid­u­als, France is cur­rently con­sid­er­ing a sys­tem of so-called In­di­vid­ual Ac­tiv­ity Ac­counts (IAAs). My col­league Selma Mah­fouz chaired a com­mit­tee that pre­pared a blueprint for such a sys­tem.

Put sim­ply, ev­ery new la­bor-force en­trant would be equipped with a life­long in­di­vid­ual ac­count, thereby ac­cu­mu­lat­ing points in the same way air­line trav­el­ers ac­cu­mu­late miles. They would earn them by work­ing in both the pri­vate and pub­lic sec­tor. Phys­i­cally stren­u­ous jobs would yield more points than of­fice jobs. Pro bono com­mu­nity ser­vice would also gen­er­ate points – per­haps more than paid jobs.

Points earned could be spent on life­long ed­u­ca­tion and pro­fes­sional train­ing, which would thus be­come in­de­pen­dent from em­ploy­ment sta­tus. Ev­ery per­son could de­cide to draw on her IAA to pre­pare for, or when mak­ing, a job change.

Other fi­nanc­ing could also be mo­bilised to­ward the same end. For ex­am­ple, an em­ployee could de­cide to shorten the du­ra­tion of his un­em­ploy­ment ben­e­fits and in­vest the cor­re­spond­ing points to ben­e­fit from bet­ter ed­u­ca­tion op­por­tu­ni­ties.

But fi­nanc­ing ed­u­ca­tion should not be the only pur­pose. Points could also be used to help fi­nance vol­un­teerism or care for el­derly fam­ily mem­bers. Points earned through hard toil could be spent on re­tir­ing ear­lier. Many more ex­am­ples of par­tial fun­gi­bil­ity could be imag­ined.

Such a sys­tem would have three ad­di­tional ben­e­fits. First, it would help im­prove ac­cess to in­for­ma­tion. Em­ploy­ees nowa­days are of­ten lost in the com­plex­ity of the var­i­ous so­cial ben­e­fits to which they are en­ti­tled. The cre­ation of IAAs and the adop­tion of a sin­gle unit of ac­count would go a long way to­ward mak­ing things sim­pler, es­pe­cially if all rel­e­vant in­di­vid­ual in­for­ma­tion is avail­able to users via a sin­gle smart­phone app. Sec­ond, IAAs would em­power em­ploy­ees, es­pe­cially the least skilled, who of­ten per­ceive them­selves as be­ing in a state of sub­jec­tion. To­gether with in­for­ma­tion, the pos­si­bil­ity to in­vest their so­cial ben­e­fits, rather than only con­sum­ing them, would strengthen their au­ton­omy and free­dom of choice.

Fi­nally, the same ac­counts could serve as ve­hi­cles for pub­lic pol­icy. For ex­am­ple, early school-leavers could be en­dowed with points for later use in pro­fes­sional train­ing. More broadly, in­stead of as­sist­ing peo­ple only when so­cial risks ma­te­ri­alise, pub­lic pol­icy could sup­port in­di­vid­u­als through­out their work­ing life, by adopt­ing a more ef­fec­tive be­spoke ap­proach that fits peo­ples’ needs bet­ter than coarsely tai­lored schemes. This may sound utopian; in a way, it is. But at a time when ev­ery dig­i­tal ser­vice be­comes more and more per­son­al­ized, why should so­cial pol­icy re­main con­fined to the phi­los­o­phy and so­lu­tions of the twen­ti­eth cen­tury?

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